What changed in this filing

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Item 1. Financial Statements

2021-05-05 compared with 2020-11-05 · 227 added, 353 removed, 267 unchanged (68% of the section changed)

3 unchanged sentences

(In thousands, except share and per share amounts)

September 30,

Current assets:

1 unchanged sentence

Short-term investments

Receivable from collaboration partners

Receivable from collaboration partners ($ 4,924 and $ 943 from a related party)

Accrued interest receivable

3 unchanged sentences

Property and equipment, net

Right-of-use assets

Restricted cash

4 unchanged sentences

Other accrued liabilities

Deferred revenue, current

Deferred revenue, current ($ 67,571 and $ 67,571 to a related party)

Other current liabilities

Total current liabilities

Deferred revenue, noncurrent

Deferred rent, noncurrent

Other long-term liabilities

Deferred revenue, noncurrent ($ 110,097 and $ 117,808 to a related party)

Operating lease liabilities, noncurrent

Other long-term liabilities ($ 9,703 and $ 9,703 to a related party)

Total liabilities

Commitments (Note 10)

Stockholders’ equity:

Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized as of September 30, 2020 and December 31, 2019;

no shares issued and outstanding as of September 30, 2020 and December 31, 2019

Common stock, $ 0.0001 par value, 400,000,000 shares authorized as of September 30, 2020 and December 31, 2019;

64,924,073 and 45,925,004 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized as of March 31, 2021 and December 31, 2020;

no shares issued and outstanding as of March 31, 2021 and December 31, 2020

Common stock, $ 0.0001 par value, 400,000,000 shares authorized as of March 31, 2021 and December 31, 2020;

70,965,513 and 65,114,685 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive income

Accumulated other comprehensive (loss) income

Total stockholders’ equity

3 unchanged sentences

ARCUS BIOSCIENCES, INC.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

Three Months Ended

Nine Months Ended

September 30,

Collaboration and license revenue

Collaboration revenue ($ 7,711 and $ 0 from a related party)

Total collaboration and license revenues

Operating expenses:

Research and development

Research and development (($ 4,924 ) and $ 0 from a related party)

General and administrative

Total operating expenses

Income (loss) from operations

Loss from operations

Non-operating income (expense):

3 unchanged sentences

Total non-operating income, net

Net income (loss)

Other comprehensive income (loss)

Comprehensive income (loss)

Net income (loss) per share, basic

Weighted-average number of shares used to

compute basic net income (loss) per share

Net income (loss) per share, diluted

Comprehensive loss

Net loss per share, basic and diluted

Weighted-average number of shares used to

compute diluted net income (loss) per share

compute basic and diluted net loss per share

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

6 unchanged sentences

Balance at December 31, 2019 *

Cumulative effect adjustment upon adoption of ASC 606

Issuance of common stock upon exercise of stock options

Vesting of early exercised stock options and restricted stock

Vesting of early exercised stock options

Stock-based compensation

1 unchanged sentence

Balance at March 31, 2020

Issuance of common stock upon exercise of stock options

Vesting of early exercised stock options and restricted stock

Issuance of common stock under Employee Stock Purchase Plan

Stock-based compensation

Other comprehensive income

Balance at June 30, 2019

Issuance of common stock upon exercise of stock options

Vesting of early exercised stock options and restricted stock

Stock-based compensation

Other comprehensive income

Balance at September 30, 2019

Balance at December 31, 2020 *

Issuance of common stock upon exercise of stock options

Vesting of early exercised stock options and restricted stock

Stock-based compensation

Other comprehensive income

Balance at March 31, 2020

Issuance of common stock in public offering, net of $ 21,629 offering costs

Issuance of common stock and rights to purchase additional shares in accordance with Amended and Restated Gilead Purchase Agreement, net of $ 55 offering costs

Issuance of common stock upon exercise of stock options

Vesting of early exercised stock options and restricted stock

Issuance of common stock under Employee Stock Purchase Plan

and vesting of restricted stock

Vesting of early exercised stock options

Stock-based compensation

Other comprehensive loss

Balance at June 30, 2020

Issuance of common stock and rights to purchase additional shares in accordance with Gilead Purchase Agreement, net of $ 1,931 offering costs

Issuance of common stock upon exercise of stock options

Vesting of early exercised stock options and restricted stock

Stock-based compensation

Other comprehensive income

Balance at September 30, 2020

Balance at March 31, 2021

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

3 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flow from operating activities

2 unchanged sentences

Depreciation and amortization

Share of loss from equity method investee

Gain on deemed sale from equity method investee

Amortization of right-of-use assets

Amortization of premiums on investments

Changes in operating assets and liabilities:

Receivable from collaboration partners

Amounts owed by a related party

Receivable from collaboration partners (($ 3,981 ) and $ 0 from a related party)

Prepaid expenses and other current assets

2 unchanged sentences

Accrued research and development expenses

Accrued liabilities

Other current liabilities

Deferred revenue

Deferred rent

Other accrued liabilities

Deferred revenue (($ 7,711 ) and $ 0 to a related party)

Operating lease liabilities

Other long-term liabilities

Net cash (used in) provided by operating activities

Net cash used in operating activities

Cash flow from investing activities

1 unchanged sentence

Proceeds from maturities of short-term and long-term investments

Sales of short-term investments

Sales of short-term and long-term investments

Purchases of property and equipment

Net cash (used in) provided by investing activities

Net cash provided by investing activities

Cash flow from financing activities

Proceeds from issuance of common stock and rights to purchase additional shares, net of issuance costs

Proceeds from issuance of common stock to related party

Proceeds from issuance of common stock pursuant to equity award plans

4 unchanged sentences

Cash, cash equivalents and restricted cash at end of period

Supplemental disclosures:

Cash paid for amounts included in measurement of lease liabilities

Non-cash investing and financing activities:

Unpaid portion of financing costs included in accrued liabilities

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

Vesting of early exercised stock options and restricted stock

Vesting of early exercised stock options

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

5 unchanged sentences

The Company’s initial focus has been on well-characterized biological pathways with significant scientific data supporting their importance.

Since its inception in 2015, the Company has built a robust and highly efficient drug discovery capability to create highly differentiated small molecules, which the Company is developing in combination with its in-licensed monoclonal antibodies through rationally designed, indication-specific, adaptive clinical trial designs.

The Company currently has five investigational products in clinical development:

domvanalimab (formerly referred to as AB154), etrumadenant (formerly referred to as AB928), AB680, zimberelimab (formerly referred to as AB122), and AB308.

Liquidity and Capital Resources

As of September 30, 2020, the Company had cash and investments of $ 785.1 million, 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 filing date of this report.

As of March 31, 2021, the Company had cash and investments of $ 884.9 million, which are cash, cash equivalents, and investments in marketable securities, which the Company believes will be sufficient to fund its planned operations for a period of at least twelve months following the date of filing of this report.

Significant Accounting Policies

6 unchanged sentences

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

Operating results for the nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020 or for any future period.

Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or for any future period.

The balance sheet as of December 31, 2020 has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S.

GAAP for complete financial statements.

Certain reclassifications have been made to prior period amounts to conform to the current year presentation.

“Accrued interest receivable,” which was previously reported as “Prepaid expenses and other current assets”, and “Accrued research and development expense”, which was previously reported as “Other accrued liabilities” on the consolidated balance sheets, are now reported as separate line items.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 5, 2020.

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and will remain an emerging growth company until December 31, 2020.

Under the JOBS Act, the Company elected the extended transition period for complying with new or revised accounting standards.

At June 30, 2020 the Company determined that it will become a large accelerated filer at December 31, 2020 and in the process will no longer qualify as an emerging growth company.

The Company will adopt any accounting pronouncements deferred under the extended transition period election on or before December 31, 2020.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC on February 25, 2021.

There have been no significant changes to the Company’s significant accounting policies described in Note 2, Summary of Significant Accounting Policies, in Notes to Consolidated Financial Statements in Item 8 of Part II of the Form 10-K.

Principles of Consolidation

The Company established a wholly-owned subsidiary in Australia in 2017 and a wholly-owned subsidiary in Ireland in 2019.

The condensed consolidated financial statements include the Company’s accounts and those of its wholly-owned subsidiaries.

All intercompany accounts, transactions and balances have been eliminated.

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

and its wholly-owned subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

12 unchanged sentences

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

Restricted cash at September 30, 2020 and December 31, 2019 represents cash balances held as security in connection with the Company’s facility lease agreements.

Restricted cash at March 31, 2021 and 2020 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

5 unchanged sentences

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

Collaborative Arrangements and Contracts with Customers

The Company assesses whether its collaboration agreements are subject to Accounting Standards Codification (ASC) Topic 808, Collaborative Arrangements (ASC 808) based on whether they involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards.

To the extent that the arrangement falls within the scope of ASC 808, the Company applies the unit of account guidance under ASC Topic 606, Revenue from Contracts with Customers (ASC 606) to identify distinct performance obligations, and then determine whether a customer relationship exists for each distinct performance obligation.

If the Company determines a performance obligation within the arrangement is with a customer, it applies the guidance in ASC 606.

If a portion of a distinct bundle of goods or services within an arrangement is not with a customer, then the unit of account is not within the scope of ASC 606, and the recognition and measurement of that unit of account shall be based on analogy to authoritative accounting literature or, if there is no appropriate analogy, a reasonable, rational, and consistently applied accounting policy election.

The Company enters into collaborative arrangements that typically include one of more of the following:

(i) license fees;

(ii) milestone payments related to the achievement of developmental, regulatory, or commercial goals;

(iii) royalties on net sales of licensed products;

(iv) fees attributable to options to intellectual property;

and (v) cost-sharing or research and development (R&D) funding arrangements.

When a portion of non‑refundable upfront fees or other payments received are allocated to continuing performance obligations under the terms of a collaborative arrangement, they are recorded as deferred revenue and recognized as revenue when (or as) the underlying performance obligation is satisfied.

Fees attributable to options are deferred until the option expires or is exercised.

When an option is exercised, the performance obligations associated with the option are identified, which will determine the accounting for the transaction price attributable to the option.

As part of the accounting for these arrangements, the Company must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligation.

To determine t he stand-alone selling price , the Company may consider items such as forecasted revenues, development timelines, discount rates, and probabilities of technical and regulatory success.

The Company evaluate s each performance obligation to determine if it can be satisfied at a point in time or over time.

In addition, variable consideration must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price.

If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license.

For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue.

The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Milestone Payments and Variable Consideration

At the inception of each arrangement that includes milestone payments or variable consideration, the Company evaluates whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method.

If it is probable that a significant revenue reversal would not occur, the associated value is included in the transaction price.

Milestone payments that are not within the control of the Company or the Company’s collaboration partner, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied.

At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price.

Any such adjustments are recorded on a cumulative catch-up basis, which would affect license, collaboration or other revenues and earnings in the period of adjustment.

Cost-Sharing or R&D Funding Arrangements

Under certain collaborative arrangements, the Company has been reimbursed for a portion of its research and development expenses, including costs of drug supplies.

When these R&D services are performed under a reimbursement or cost sharing model with a collaboration partner, the Company records these reimbursements as a reduction of R&D expense in its condensed consolidated statements of operations.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

To date, the Company has not recognized any royalty revenue resulting from any of its collaborative arrangements.

Research and Development Expenses

Research and development costs are expensed as incurred.

Research and development expenses consist primarily of personnel costs for the Company’s research and development employees, costs incurred to third-party service providers for the conduct of research, preclinical and clinical studies, laboratory supplies and equipment maintenance costs, product license fees, consulting and other related expenses.

The Company estimates research, preclinical and clinical study expenses based on services performed, pursuant to contracts with third-party research and development organizations that conduct and manage research, preclinical and clinical activities on its behalf.

The Company estimates these expenses based on discussions with internal management personnel and external service providers as to the progress or stage of completion of services and the contracted fees to be paid for such services.

If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly.

Payments associated with licensing agreements to acquire licenses to develop, use, manufacture and commercialize products that have not reached technological feasibility and do not have alternative future use are expensed as incurred.

Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered.

Stock-Based Compensation

Stock-based awards granted include stock options and restricted stock awards with time-based vesting.

Accounting standards require the recognition of compensation expense, using a fair value-based method, for costs related to all stock-based payments.

The Company’s determination of the fair value of stock options with time-based vesting on the date of grant utilizes the Black-Scholes option-pricing model, and is impacted by the Company’s common stock price as well as other variables including, but not limited to, expected term that options will remain outstanding, expected common stock price volatility over the term of the option awards, risk-free interest rates and expected dividends.

Compensation expense associated with restricted stock awards is based on the fair value of common stock on the date of grant.

On March 18, 2020, the Families First Coronavirus Response act (FFCR Act), and on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) were each enacted in response to the COVID-19 pandemic.

The FFCR Act and the CARES Act contain numerous tax-related provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

On June 29, 2020 California State Assembly Bill 85 (the Trailer Bill) was enacted which suspends the use of California net operating loss (NOL) deductions and certain tax credits, including research and development tax credits, for the 2020, 2021, and 2022 tax years.

The FFCR Act, CARES Act and Trailer Bill did not have a material impact on the Company’s condensed consolidated financial statements as of September 30, 2020;

however, the Company continues to examine the impacts the FFCR Act, CARES Act and Trailer Bill may have on its business, results of operations, financial condition and liquidity.

Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

ASU 2019-12 reduces costs and complexity of applying accounting standards while maintaining the usefulness of the information provided to users of financial statements.

While not required to be adopted until 2021 for most calendar year public business entities, early adoption is permitted for any financial statements not yet issued.

The Company early adopted this ASU as of January 1, 2020, with an immaterial impact on its financial statements.

In November 2018, the FASB issued ASU No.

2018-18 (Topic 808), Collaborative Arrangements .

ASU 2018-18 clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606, Revenue from Contracts with Customers , (Topic 606) when the collaborative arrangement participant is a customer in the context of a unit of account and precludes recognizing as revenue consideration received from a collaborative arrangement participant if the participant is not a customer.

The Company adopted this ASU as of January 1, 2020, with an immaterial impact on its financial statements.

Recently Issued Accounting Standards or Updates Not Yet Effective

In February 2016, the FASB issued ASU No.

2016-02 (Topic 842), Leases (ASU 2016-02).

ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases.

The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.

In July 2018, the FASB issued ASU No.

2018-10 , Codification Improvements to Topic 842, Leases and ASU No.

2018-11, Leases (Topic 842):

Targeted Improvements , which offers a practical expedient for transitioning at the adoption date.

The Company is required to adopt these ASUs for its year ended December 31, 2020, with an effective date of January 1, 2020.

The Company expects to adopt the standard using the modified retrospective approach which requires a cumulative-effect adjustment to retained earnings for adjustments prior to January 1, 2020.

The Company also expects to adopt certain practical expedients provided by ASU 2018-11.

The Company is in the process of implementing its plan, which includes the identification of its lease population and implementing changes to existing process that will be required to meet the requirements of the new standard.

The adoption of Topic 842 is expected to impact the Company’s condensed consolidated financial statements as the Company has certain operating lease arrangements for which it is the lessee.

The Company is currently evaluating the impact the adoption of Topic 842 will have on its financial position and results of operations but anticipates the recognition of additional material assets and corresponding material liabilities on its condensed consolidated balance sheet related to leases.

The adoption of this accounting standard update is also expected to impact the Company’s condensed consolidated financial statement disclosures.

While the Company is finalizing its evaluation of adopting this accounting standard update on its financial statements and related disclosures, the Company expects to recognize on its balance sheet for associated leases new ROU assets and corresponding liabilities as of January 1, 2020, approximately $ 6 million and $ 10 million, respectively.

In June 2016, the FASB issued ASU No.

2016 -13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which modifies the measurement and recognition of credit losses for most financial assets and certain other

The ASU updates the guidance for measuring and recording of current expected credit losses on financial assets measured at amortized cost by replacing the “incurred loss” model with an “expected loss” model.

Accordingly, these financial assets will be presented at the net amount expected to be collected.

The ASU also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model.

The Company is required to adopt ASU 2016-13 for its year ended December 31, 2020, with an effective date of January 1, 2020.

The Company expects to adopt the standard using the modified retrospective approach which requires a cumulative-effect adjustment to accumulated deficit for adjustments prior to January 1, 2020.

The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU No.2018-13 (Topic 820), Fair Value Measurement.

ASU 2018-13 modifies the disclosure requirements on fair value measurement in Topic 820.

The Company is required to adopt ASU 2018-13 by December 31, 2020, with an effective date of January 1, 2020.

The Company expects to adopt the standard on December 31, 2020.

The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU No.2018-15 (Subtopic 350-40), Intangibles – Goodwill and Other – Internal-Use Software.

ASU 2018-15 requires an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to internal-use software.

The Company is required to adopt ASU 2018-15 by December 31, 2020, with an effective date of January 1, 2020.

The Company expects to adopt the standard on December 31, 2020.

The adoption of this standard is not expected to have a material impact on the Company’s condensed consolidated financial statements.

Leases and Rent Expense

The Company recognizes a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation.

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

Operating leases are included in operating lease right-of-use assets, other current liabilities, and operating lease liabilities, noncurrent in our condensed consolidated balance sheets at March 31, 2021 and December 31, 2020.

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.

In determining the net present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date.

The incremental borrowing rate represents the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease.

The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset, including any periods where it is reasonably assured the Company will exercise the option to extend the contract.

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

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

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

Fair Value Measurements

2 unchanged sentences

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 as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2—Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

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

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

2 unchanged sentences

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

There were no transfers within the hierarchy as of September 30, 2020 and December 31, 2019.

There were no transfers within the hierarchy as of March 31, 2021 and December 31, 2020.

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

September 30, 2020

March 31, 2021

(Quoted Prices in

Active Markets For

Identical Assets)

(Significant Other

Remaining Inputs)

(Significant Other

Remaining Inputs)

Money market funds

4 unchanged sentences

December 31, 2020

(Quoted Prices in

Active Markets For

Identical Assets)

(Significant Other

Remaining Inputs)

(Significant Other

Remaining Inputs)

Money market funds

treasury securities

government agency obligations

Corporate securities and commercial paper

1 unchanged sentence

Classified as (with contractual maturities):

September 30, 2020

March 31, 2021

December 31, 2020

4 unchanged sentences

Investments in marketable securities are classified as available-for-sale.

At September 30, 2020 and December 31, 2019, the balance in the Company’s accumulated other comprehensive income comprised activity related to the Company’s available-for-sale marketable securities.

There were immaterial and no realized gains or losses recognized on the sale or maturity of available-for-sale marketable securities as of September 30, 2020 and December 31, 2019, respectively, and as a result, the Company did no t reclassify any amounts out of accumulated other comprehensive income for the periods then ended.

The Company has a limited number of available-for-sale marketable securities in loss positions as of September 30, 2020, which the Company does not intend to sell and has concluded it will not be required to sell 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, 2020 and December 31, 2019 are presented in the tables that follow (in thousands):

As of September 30, 2020:

At March 31, 2021 and December 31, 2020, the balance in the Company’s accumulated other comprehensive income comprised activity related to the Company’s available-for-sale marketable securities.

There were immaterial realized gains or losses recognized on the sale or maturity of available-for-sale marketable securities as of March 31, 2021 and December 31, 2020, and as a result, the Company did no t reclassify any amounts out of accumulated other comprehensive income for the periods then ended.

The Company has a limited number of available-for-sale marketable securities in loss positions as of March 31, 2021, which the Company does not intend to sell and has concluded it will not be required to sell 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 March 31, 2021 and December 31, 2020 are presented in the tables that follow (in thousands):

As of March 31, 2021:

Money market funds

5 unchanged sentences

treasury securities

government agency obligations

Corporate securities and commercial paper

1 unchanged sentence

Accrued liabilities consisted of the following (in thousands):

As of September 30, 2020

As of March 31, 2021

As of December 31, 2020

Personnel expenses

Accrued personnel expenses

Professional fees

Equity Investment

Equity Investment in PACT Pharma

The Company owns approximately 3.6 million shares of common stock, 1.0 million shares of Series A preferred stock, and warrants to purchase additional stock of PACT Pharma, Inc.

(PACT Pharma), a privately funded, early-stage biopharmaceutical company focused on adoptive cell therapy.

This interest in PACT Pharma is accounted for as an equity method investment, and as a result the Company records its share of PACT Pharma’s operating results in interest and other income, net, in its condensed consolidated statements of operations and comprehensive income (loss).

The investment balance was zero at September 30, 2020 and December 31, 2019.

(PACT Pharma), a clinical-stage biopharmaceutical company focused on pioneering individualized, non-viral precision genome engineered, tumor-specific T cell therapies for the treatment of patients with solid tumors.

The investment balance was zero at March 31, 2021 and December 31, 2020.

Since the Company has no obligation to provide cash financing to PACT Pharma, the Company is not required to record losses beyond the carrying amount of the investment.

1 unchanged sentence

The Company did not participate in these financings.

The decrease in the Company’s equity ownership percentage and an increase in PACT Pharma’s estimated fair value per share resulted in gains on dilution totaling an immaterial amount and $ 1.5 million during the three and nine months ended September 30, 2020.

After applying an immaterial amount and $ 0.9 million in losses accumulated in prior periods when the equity investment balance was zero , the Company recorded a gain of zero and $ 0.6 million for the three and nine months ended September 30, 2020, respectively.

The Company’s share of PACT Pharma’s losses for the for the three and nine months ended September 30, 2020 exceeded gains for the same period.

The Company recorded zero and $ 0.6 million for its share of PACT Pharma’s operating losses for the three and nine months ended September 30, 2020, respectively.

The unrecognized equity method losses in excess of the Company’s investment was $ 1.2 million as of September 30, 2020.

At September 30, 2020 and December 31, 2019, the Company determined the fair value of the warrants to be insignificant to the condensed consolidated financial statements.

The decrease in the Company’s equity ownership percentage and increase in PACT Pharma’s estimated fair value per share resulted in gains on dilution totaling $ 1.3 million during the three months ended March 31, 2020.

After applying $ 0.8 million in losses accumulated in prior periods when the equity investment balance was zero , the Company recorded a gain of $ 0.5 million for the three months ended March 31, 2020.

There was no similar gain on dilution in the quarter ended March 31, 2021.

For the three months ended March 31, 2021, the Company accounted for its $ 0.8 million share of PACT Pharma’s losses as unrecognized equity method losses.

The Company’s share of PACT Pharma’s losses for the three months ended March 31, 2021 and 2020 exceeded gains for the same periods.

The Company recorded zero and $ 0.5 million for its share of PACT Pharma’s operating losses for the three months ended March 31, 2021 and 2020, respectively.

The unrecognized equity method losses in excess of the Company’s investment was $ 2.1 million as of March 31, 2021.

At March 31, 2021 and December 31, 2020, the Company determined the fair value of the warrants to be insignificant to the condensed consolidated financial statements.

License and Collaboration Agreements

The following table summarizes the revenues for the three and nine months ended September 30, 2020 and 2019 received as a result of the Company’s collaboration agreements with Gilead Sciences, Inc.

The following table summarizes the revenues for the three months ended March 31, 2021 and 2020 received as a result of the Company’s collaboration agreements with Gilead Sciences, Inc.

(Gilead) and Taiho Pharmaceutical Co., Ltd.

Three Months Ended September 30,

Nine Months Ended September 30,

License revenue

Three Months Ended March 31,

Collaboration revenue

Collaboration and license revenue

The following table summarizes details of revenues for the three and nine months ended September 30, 2020 and 2019 by collaboration and by category of revenue:

Three Months Ended September 30,

Nine Months Ended September 30,

Total collaboration and license revenue

The following table summarizes details of revenues for the three months ended March 31, 2021 and 2020 by collaboration and by category of revenue:

Three Months Ended March 31,

Revenues recognized:

Point in time

Gilead license to zimberelimab

Gilead access rights related to the Company's research and development pipeline

Gilead access rights related to the Company's research

and development pipeline

Taiho collaboration agreement

Total collaboration and license revenue

In addition to revenues, the Company recognized $ 0.5 million as a reduction to R&D expense for the three months ended September 30, 2020 due to the development services performed during the period for zimberelimab .

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 September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Revenue recognized in the period from:

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Performance obligations satisfied in previous period

The Company received $ 175 million in upfront payments from Gilead in connection with the Option, License and Collaboration Agreement and identified $ 100 million in unconstrained consideration to be received in 2022.

In addition, the Company received $ 200 million from Gilead in connection with the Stock Purchase Agreement, of which approximately $ 109.4 million represented the fair value of stock purchased at the transaction closing date in July 2020 with the remaining premium of $ 90.6 million allocated to the transaction price.

The Company determined the present value of the unconstrained variable consideration to be $ 99.1 million at the contract closing date.

These payments were allocated to the performance obligations identified as follows:

September 30, 2020

Allocation of transaction price

Upfront cash consideration

Payment for access rights related to the Company's research and development pipeline

Premium from Stock Purchase Agreement

Total transaction price allocated to revenue

Allocation to performance obligations

Zimberelimab license

Etrumadenant option

Domvanalimab option

Access rights related to the Company's research and development pipeline

Development and commercialization services for zimberelimab

Gilead Sciences, Inc.

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The transaction closed on July 13, 2020 following expiration of the antitrust waiting period.

Upon closing, 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, and the Company appointed Gilead’s designee, Merdad Parsey, M.D., Ph.D., to the Company’s Board of Directors pursuant to the Investor Rights Agreement.

Pursuant to the terms of the Gilead Collaboration Agreement, Gilead has an exclusive license to develop and commercialize zimberelimab (formerly referred to as AB122) in certain markets and obtained exclusive options to acquire an exclusive license to develop and commercialize all of the Company’s current and future clinical programs during the 10-year collaboration term, contingent upon Gilead’s payment of up to $ 400.0 million 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 may exercise its option, on a program-by-program basis, upon payment of an option fee that ranges from $ 200 million to $ 275 million per program for the Company’s current clinical programs, and $ 150 million per program for all other programs should Gilead elect to exercise its options.

Pursuant to the Investor Rights Agreement, the Company appointed Gilead’s designees, Merdad Parsey, M.D., Ph.D.

and Michael Quigley, Ph.D., to the Company’s Board of Directors.

See Note 11 for further discussion of the agreements with Gilead.

Pursuant to the terms of the Gilead Collaboration Agreement, Gilead has an exclusive license to develop and commercialize zimberelimab in certain markets and obtained exclusive options to acquire an exclusive license to develop and commercialize all of the Company’s current and future clinical programs during the 10-year collaboration term, contingent upon Gilead’s access rights payments of up to $ 400 million 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 may exercise its option, on a program-by-program basis, upon payment of an option fee that ranges from $ 200 million to $ 275 million per program for the Company’s clinical programs in existence at the date of the agreement, and $ 150 million per program for all other programs that enter clinical development thereafter should Gilead elect to exercise its options.

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

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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 the high teens to the low twenties.

Gilead will further provide

ongoing research and development support in the form of research and development pipeline access rights payments of up to $ 400 million over the collaboration term.

Pursuant to the Stock Purchase Agreement and the Investor Rights 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 the next five years , 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.

Gilead will further provide ongoing research and development support in the form of research and development pipeline access rights payments of up to $ 400 million over the collaboration term.

Pursuant to the Stock Purchase Agreement and the Investor Rights 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 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.

Based on the value of the Company’s common stock at the contract closing, the right to purchase additional shares had no value.

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 5,650,000 shares of the Company’s common stock at a purchase price of $ 39.00 per share for total gross proceeds of $ 220.4 million.

All other terms of the original Stock Purchase Agreement remain unchanged.

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.

The Company’s assessment of the transaction price included an analysis of amounts it expected to receive, which at contract inception consisted of the upfront cash payment of $ 175.0 million due upon contract closing in July 2020, the present value of the $ 100.0 million payment related to the research and development access rights due in 2022, and the $ 90.6 million premium resulting from Gilead’s purchase of common stock.

The Company’s assessment of the transaction price included an analysis of amounts it expected to receive, which at contract inception consisted of the upfront cash payment of $ 175.0 million due upon contract closing in July 2020, the $ 100.0 million payment related to the research and development access rights due in 2022, and the $ 90.6 million premium resulting from Gilead’s purchase of common stock.

All payments to date have been made by Gilead as they became due and payable so given this successful collection history, the Company considers the entire $ 365.6 million outlined above to be the initial transaction price.

The Company evaluated the Gilead Agreements under ASC 606 and determined that the performance obligations at the contract inception consisted of the following:

Zimberelimab (formerly AB122) license

Zimberelimab license

Effective on closing, Gilead obtained an exclusive license to zimberelimab.

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The Company recognized the full revenues associated with this performance obligation on the date the transaction closed.

Etrumadenant (formerly AB928) option

Etrumadenant option

Gilead has the right to exercise an option for exclusive rights to etrumadenant, the Company’s adenosine receptor program, in exchange for an option payment of $ 250.0 million, that expires after a proscribed period following the Company’s achievement of certain development milestones.

The Company calculated the standalone selling price of this program using a discounted cash flow method and concluded that it exceeded the price of the option, creating a material right and a distinct performance obligation.

The Company will recognize revenue allocated to the material right either upon the option’s exercise or expiration.

Domvanalimab (formerly AB154) option

If the option is exercised, the performance obligations associated with the option will be identified and the Company will determine the accounting for the option’s transaction price.

If the option is allowed to lapse after development milestones trigger the start of the opt-in period, the Company will recognize any deferred revenue allocated to the option at the time of the lapse.

At March 31, 2021, the Company had $ 127.0 million of deferred revenue on its condensed consolidated balance sheets related to this performance obligation.

The Company has evaluated the program’s status as of the balance sheet date and believes that some or all of the revenue associated with the opt-in will be recognized within the minimum four-year term of the Gilead Collaboration Agreement.

Domvanalimab option

Gilead has the right to exercise an option for exclusive rights to domvanalimab, the Company’s anti-TIGIT monoclonal antibody, in exchange for an option payment of $ 275.0 million, that expires after a proscribed period following the Company’s achievement of certain development milestones.

The Company will recognize revenue allocated to the material right either upon the option’s exercise or expiration.

If the option is exercised, the performance obligations associated with the option will be identified and will determine the accounting for the option’s transaction price.

At March 31, 2021, the Company had $ 36.7 million of deferred revenue on its condensed consolidated balance sheets related to this performance obligation.

The Company has evaluated the program’s status and believes that revenue associated with the opt-in will be recognized within one year .

Access rights related to the Company’s research and development pipeline

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As a result, the amount was included in the transaction price.

The Company determined that the revenue allocated to the performance obligation should be recognized over the four-year period.

The Company uses a time-elapsed input method to measure progress toward satisfying this 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 Gilead has access to the Company’s research and development pipeline.

Accordingly, the revenue allocated to the performance obligation is being recognized using this input method over the minimum four-year period.

The Company further determined that Gilead is not obligated to pay the remaining $ 300 million due over the remainder of the term.

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

Development and commercialization services for zimberelimab

At March 31, 2021, the Company had $ 114.0 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.

Development and commercialization services for zimberelimab monotherapy

In conjunction with the license, the Company determined there existed a separate obligation to perform further development and commercialization services for Gilead.

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

This obligation includes a 50/50 share of the costs associated with all future development and commercialization of zimberelimab.

The portion of the transaction price allocated to this performance obligation has been allocated in accordance with the total costs forecast for the development and commercialization of zimberelimab.

The Company will recognize the amounts allocated to development services throughout the initial 4 year period of the contract.

The Company will defer the portion allocated to

commercialization services until future periods when the actual costs are incurred .

Any payments received from or payments made to Gilead for the 50/50 cost share will be recognized as a reduction or an increase to R&D expense, respectively.

This obligation includes a 50/50 share of the costs associated with all future development and commercialization of zimberelimab as a monotherapy.

The portion of the transaction price allocated to this performance obligation has been allocated in accordance with the total costs forecast for the development and commercialization of zimberelimab as a monotherapy.

The Company will recognize the amounts allocated to these services as the performance obligation is satisfied.

Any additional payments received from or payments made to Gilead for the 50/50 cost share will be recognized as a reduction or an increase to R&D expense, respectively.

At March 31, 2021, the Company had $ 9.7 million of contract liabilities on its consolidated balance sheets related to this performance obligation.

The Company has evaluated the program’s status and believes that revenue associated with these services will be recognized over the full term of the contract.

As of March 31, 2021, no revenue had been recognized from this performance obligation.

Gilead was also granted option rights to programs not yet in development.

These programs were not determined to be performance obligations at contract inception, as there are no identified programs, revenues, or costs to compare against the option price.

Prepaid expenses and contract liabilities

The Company incurred $ 7.3 million in expenses to obtain the contract, which consisted of consultant and legal fees that were directly connected to the successful completion of the Gilead Collaboration Agreement, the Stock Purchase Agreement and the Investor Rights Agreement.

Prepaid expenses

The Company incurred $ 7.3 million in expenses to obtain the contract, which consisted of consultant and legal fees that were directly connected to the successful completion of the Gilead Agreements.

The Company determined that $ 1.9 million of these expenses were related to the Stock Purchase Agreement and recorded them as offering costs.

The Company allocated the remaining expenses between the various performance obligations, to be recognized when the underlying revenue is recognized.

The portion allocated to the delivery of zimberelimab was recognized immediately, and the portion allocated to the remaining performance obligations will be recognized over the initial noncancelable four-year term of the Gilead Collaboration Agreement.

During the three and nine months ended September 30, 2020, the Company recognized $ 1.1 million in expense from the amortization of these assets.

At September 30, 2020, the Company had $ 4.3 million in prepaid expenses from costs to obtain the Gilead Agreements, of which $ 2.9 million was recorded in prepaid expenses and other current assets and $ 1.4 million was recorded in other long-term assets.

The Company also recognized $ 9.2 million in contract liabilities for future development and promotion costs which Gilead prepaid, of which $ 1.9 million and $ 7.3 million represented the short and long-term portions of the liability, recorded in other current liabilities and other non-current liabilities on the condensed consolidated balance sheets, respectively.

The portion allocated to the delivery of zimberelimab was recognized immediately, and the portion allocated to the remaining performance obligations will be recognized with timing consistent with the associated performance obligation.

During the three months ended March 31, 2021, the Company recognized $ 0.1 million in expense from the amortization of these assets.

At March 31, 2021, the Company had $ 4.1 million in prepaid expenses from costs to obtain the Gilead Agreements, of which $ 1.0 million was recorded in prepaid expenses and other current assets and $ 3.1 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) to collaborate on the potential development and commercialization of certain investigational products from the Company’s portfolio in Japan and certain other territories in Asia (excluding China) (the Taiho Territory).

The Taiho Agreement provides Taiho with exclusive options in the Taiho Territory, over a five-year period (the Option Period), to obtain an exclusive development and commercialization license to clinical stage investigational products from the Company’s programs (each, an Arcus Program).

The Taiho Agreement provides Taiho with exclusive options, over a five-year period (the Option Period), to obtain an exclusive development and commercialization license to clinical stage investigational products from the Company’s programs (each, an Arcus Program).

In consideration for the exclusive options and other rights contained in the Taiho Agreement, Taiho agreed to make non-refundable, non-creditable cash payments to the Company totaling $ 35.0 million, of which the Company received $ 25.0 million during 2017.

1 unchanged sentence

In the event that the Company has not initiated IND enabling studies for at least five Arcus Programs prior to the expiration of the Option Period, Taiho may elect to extend the Option Period, up to a maximum of seven years , subject to an extension fee.

For each option that Taiho elects to exercise, Taiho will be obligated to make an option exercise payment of between $ 3.0 million to $ 15.0 million, depending on the development stage of the applicable Arcus Program for which the option is exercised.

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.

For each option that Taiho elects to exercise, it will be obligated to make an option exercise payment of between $ 3.0 million to $ 15.0 million, depending on the development stage of the applicable Arcus Program for which the option is exercised.

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.

2 unchanged sentences

and (b) expiration of the last-to-expire valid claim of the Company’s patents covering the manufacture, use or sale or exploitation of such licensed product in such country (the Royalty Term).

The Company evaluated the Taiho Agreement under ASC 606 and determined that the current performance obligations consist of (1) the research and development services, in which the Company will use commercially reasonable efforts to initiate IND enabling studies for at least five Arcus Programs, as well as further develop such Arcus Programs during the term of the Agreement, and (2) the obligation to participate on the joint steering committee.

These deliverables are non-contingent in nature.

The Company determined that the obligation to participate in the joint steering committee does not have stand-alone value to Taiho because the committee’s primary purpose is to monitor and govern the research and development activities and, hence, it is inseparable from the research and development services.

The Company’s assessment of the transaction price included an analysis of amounts it expected to receive, which at contract inception consisted of the upfront cash payment of $ 20.0 million due upon contract execution in September 2017, a $ 5.0 million payment due within 30 days of contract execution, an anniversary payment of $ 5.0 million due in 2018, and a final anniversary payment of $ 5.0 million due in 2019.

All payments were made by Taiho as they became due and payable so given this successful collection history, the Company considers the entire $ 35.0 million in non-refundable fees to be the initial transaction price.

The Company determined that the combined performance obligation of the research and development services and the obligation to participate on the joint steering committee are satisfied over time.

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.

The Company determined that the identified performance obligations, which include the combined performance obligation of the research and development services and the obligation to participate on the joint steering committee, are satisfied over time.

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 using this input method over the estimated performance period of five years .

The Company also concluded that, at the inception of the agreement, Taiho’s exclusive options are not considered material rights as the options do not contain a significant and incremental discount.

The Company therefore excludes the exclusive options from the initial transaction price and accounts for them as separate contracts.

In 2018, Taiho exercised its option to the Company’s adenosine receptor antagonist program, including etrumadenant (formerly referred to as AB928), for a fee of $ 3.0 million, which was recognized by the Company as revenue during the year ended December 31, 2018 under ASC 605.

The adoption of ASC 606 in 2019 had no effect on the revenue recognized for this fee.

In 2019, Taiho exercised its option to the Company’s anti-PD-1 antibody program, including zimberelimab (formerly referred to as AB122) for a fee of $ 8.0 million.

The Company identified one performance obligation, the delivery of the license, which was completed in 2019.

The transaction price was determined to be the payment of $ 8.0 million, which was recognized by the Company as licensing revenue during the year ended December 31, 2019 under ASC 606.

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

The Company also determined that the clinical and regulatory milestone payments under the Taiho Agreement are variable consideration under ASC 606 which need to be added to the transaction price when it is probable that a significant revenue reversal will not occur.

Based on the nature of the clinical and regulatory milestones, such as the regulatory approvals which are not within the Company’s control, the Company will not consider achievement of such milestones to be probable until the uncertainty associated with the milestones has been resolved.

When it is probable that a significant reversal of revenue will not occur, the milestone payment will be added to the transaction price, which will then be allocated to each performance obligation, on a relative standalone selling price basis, for which the Company recognizes revenue.

As of September 30, 2020, no clinical or regulatory milestones had been achieved under the Taiho Agreement.

As of March 31, 2021, no clinical or regulatory milestones had been achieved under the Taiho Agreement.

The Company also considers the contingent payments due from Taiho upon the achievement of specified sales volumes to be similar to royalty payments.

1 unchanged sentence

The Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

As of September 30, 2020, no sales milestone or royalty revenue has been recognized.

As of March 31, 2021, no sales milestone or royalty revenue has been recognized.

The Taiho Agreement shall remain in effect until expiry of all Royalty Terms for the licensed products, in each case subject to certain exceptions.

WuXi Biologics License Agreement

The Company entered into a license agreement (the WuXi Agreement) with WuXi Biologics (Cayman) Inc.

(WuXi Biologics) in August 2017, as subsequently amended in June 2019 and March 2020, 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 and Thailand.

From the inception of the WuXi Agreement through September 30, 2020, the Company has made upfront and milestone payments of $ 31.0 million and incurred sub-license fees of $ 11.3 million.

These payments were recorded as research and development expense, as the products had not reached technological feasibility and do not have an alternative future use.

The WuXi Agreement also provides for additional 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.

The Company incurred $ 10.1 million and $ 15.1 million in expense under the WuXi Agreement during the three and nine months ended September 30, 2020, which includes a sub-license fee of $ 10.1 million due in connection with the grant of a sublicense to Gilead for zimberelimab under the Gilead Collaboration Agreement in July 2020, and a $ 5.0 million development milestone expense.

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 and Thailand.

From the inception of the WuXi PD-1 Agreement through March 31, 2021, the Company has made upfront and milestone payments of $ 41.0 million and incurred sub-license fees of $ 11.3 million.

These payments were recorded as research and development expense, as the products had not reached technological feasibility and did not have an alternative future use.

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.

The Company incurred $ 10.0 million in development milestone expense under the WuXi PD-1 Agreement during the three months ended March 31, 2021.

In December 2020, the Company entered into a separate license agreement (the WuXi CD-39 Agreement) with WuXi Biologics to develop anti-CD39 antibodies.

Under the agreement, the Company was granted exclusive worldwide rights to anti-CD39 antibodies discovered under the collaboration and will be responsible for the further development and commercialization of those antibodies.

From the inception of the WuXi CD-39 Agreement through March 31, 2021, the Company has paid $ 0.5 million in upfront payments which was recorded in research and development expense, as the products are still in research stage.

The WuXi CD-39 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.

Abmuno License Agreement

In December 2016, the Company entered into a license agreement (the Abmuno Agreement) with Abmuno Therapeutics LLC (Abmuno) for a worldwide exclusive license to develop, use, manufacture, and commercialize products that include an anti-TIGIT antibody, including domvanalimab (formerly referred to as AB154).

Under the Abmuno Agreement, the Company has made upfront and milestone payments totaling $ 9.6 million as of September 30, 2020.

The Abmuno Agreement also provides for additional clinical, regulatory and commercialization milestone remaining payments of up to $ 98.0 million as of September 30, 2020.

The Company incurred $ 3.0 million in development milestone expense during the three and nine months ended September 30, 2020.

Under the Abmuno Agreement, the Company has made upfront and milestone payments totaling $ 14.6 million as of March 31, 2021.

The Abmuno Agreement also provides for additional clinical, regulatory and commercialization milestone remaining payments of up to $ 93.0 million as of March 31, 2021.

The Company incurred $ 5.0 million in development milestone expense under the Abmuno Agreement during the three months ended March 31, 2021.

Genentech Collaboration Agreement

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

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

Pursuant to the Genentech Agreement, the parties entered into Trial Supplements for the evaluation of etrumadenant (formerly referred to as AB928) and atezolizumab utilizing the MORPHEUS platform in two separate study indications:

second and third line metastatic colorectal cancer;

and first line metastatic pancreatic cancer.

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

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

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

For the three and nine months ended September 30, 2020, the Company incurred expenses pursuant to the Genentech Agreement of $ 0.1 million.

From the inception of the Agreement through March 31, 2021, the Company has incurred net expenses of $ 0.8 million.

For the three months ended March 31, 2021 and 2020, the Company incurred expenses pursuant to the Genentech Agreement of $ 0.3 million and zero , respectively.

Net expenses related to this co-development agreement are recorded within research and development expenses.

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net sales of zimberelimab in the biomarker-identified indication.

From the inception of the Agreement through September 30, 2020, the Company has made a milestone payment of $ 2.5 million and has incurred expenses of $ 2.2 million, of which $ 0.4 million had been reimbursed by Strata as development cost sharing.

These amounts were recorded within research and development expense.

From the inception of the Agreement through March 31, 2021, the Company has made a milestone payment of $ 2.5 million and has incurred expenses of $ 3.3 million, of which $ 0.7 million had been reimbursed by Strata as development cost sharing.

Net expenses related to this co-development agreement were recorded within research and development expenses.

As further consideration in connection with the Strata Agreement, the Company issued to Strata 1,257,651 restricted shares of its common stock with an initial measured fair value of $ 15.0 million, which are subject to vesting based upon the achievement of specified regulatory milestones within certain timelines.

1 unchanged sentence

The probability of achievement is assessed at the end of each quarterly period.

As of September 30, 2020, the Company determined that no ne of the restricted shares were probable of vesting and, as a result, no compensation expense related to the restricted shares has been recognized to date.

For the three and nine months ended September 30, 2020, the Company incurred expenses pursuant to the Strata Agreement of $ 0.3 million and $ 1.2 million, respectively.

Of these expenses, $ 0.1 million and $ 0.2 million have been reimbursed by Strata as development cost sharing for the three and nine months ended September 30, 2020, respectively.

As of March 31, 2021, the Company determined that no ne of the restricted shares were probable of vesting and, as a result, no compensation expense related to the restricted shares has been recognized to date.

For the three months ended March 31, 2021 and 2020, the Company incurred expenses pursuant to the Strata Agreement of $ 0.6 million and $ 0.4 million, respectively.

Of these expenses, $ 0.1 million have been reimbursed by Strata as development cost sharing for each of the three months ended March 31, 2021 and 2020.

Net expenses related to this co-development agreement are recorded within research and development expenses.

AstraZeneca Agreement

On October 29, 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).

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

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

Under the terms of the agreement and subject to the parties’ approval of a final budget for the clinical trial, the Company may be obligated to reimburse AstraZeneca for a portion of the costs incurred.

Consistent with the terms of the Gilead Collaboration Agreement, Gilead maintains an option to co-develop and co-commercialize domvanalimab.

If Gilead exercises its option to domvanalimab, the trial from this AstraZeneca collaboration is expected to form part of the Arcus and Gilead joint development program and Arcus’s portion of the trial costs would be shared with Gilead.

For the three months ended March 31, 2021, the Company incurred immaterial expenses pursuant to the AstraZeneca Agreement.

Expense from this co-development agreement are recorded within research and development expenses.

Stockholders’ Equity

8 unchanged sentences

Net proceeds from Gilead’s equity investment were approximately $ 107.5 million after allocating the premium and deducting direct offering expenses of $ 1.9 million.

In February 2021, the Company closed the Amended and Restated Common Stock Purchase Agreement with Gilead, pursuant to which Gilead made an equity investment of approximately $ 220.4 million in the Company by purchasing 5,650,000 shares of the Company’s common stock at a per share price of $ 39.00 .

Stock-Based Compensation

In March 2018, the Company adopted the 2018 Equity Incentive Plan (2018 Plan).

The 2018 Plan replaced the Company’s 2015 Stock Plan (2015 Plan) and 3,570,000 shares were reserved under the 2018 Plan, along with any shares remaining available for issuance under the Company’s 2015 Plan or outstanding awards under its 2015 Plan that subsequently expire, lapse unexercised or are forfeited to or repurchased by the Company.

In January 2020, the Company adopted the 2020 Inducement Plan (2020 Plan).

Under the 2020 Plan, 3,000,000 shares were reserved for issuance.

In June 2020, the Company issued a total of 658,950 shares of common stock under restricted stock agreements to its employees and directors under the 2018 Plan.

At the date of grant, the shares had an estimated weighted average fair value of $ 29.41 per share.

Under the terms of the restricted stock agreements, shares vest annually over four years for employees and over 12 months for directors.

During the three and nine months ended September 30, 2020, 5,000 shares were forfeited.

There were 653,950 shares of restricted stock outstanding at September 30, 2020.

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

Three Months Ended September 30,

Nine Months Ended September 30,

The Company grants awards under its 2018 Equity Incentive Plan and the 2020 Inducement Plan.

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

Three Months Ended March 31,

Research and development

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Total stock-based compensation

Net Income (Loss) per Share

Basic net income (loss) per share is calculated based on the weighted-average number of shares of the Company’s common stock during the period.

Diluted net income (loss) per share is calculated based on the weighted-average number of shares of the Company’s common stock and other dilutive securities outstanding during the period.

The potentially dilutive shares of the Company’s common stock resulting from the assumed exercise of outstanding stock options and equivalents were determined under the treasury stock method.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Net income (loss)

Net Loss per Share

Basic net loss per share is calculated based on the weighted-average number of shares of the Company’s common stock during the period.

Diluted net loss per share is calculated based on the weighted-average number of shares of the Company’s common stock and other dilutive securities outstanding during the period.

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

Three Months Ended March 31,

Weighted-average common shares outstanding

weighted-average common shares subject to vesting

Weighted-average common shares used to compute basic net income (loss) per share

Dilutive effect of stock options

Dilutive effect of ESPP

Weighted-average common shares used to compute diluted net income (loss) per share

Net income (loss) per share:

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

Three Months Ended September 30,

Nine Months Ended September 30,

Weighted-average common shares used to compute basic and diluted net loss per share

Net loss per share:

basic and diluted

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

Three Months Ended March 31,

Common stock options issued and outstanding

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Unvested early exercised common stock options

Restricted stock units issued

Unvested restricted stock units

Employee Stock Purchase Plan shares

The Company also excluded the effect of Gilead ’s right to purchase additional shares of the Company’s common stock from its calculation as the se rights had no intrinsic value at September 30, 2020.

The Company leases laboratory and office space in Hayward, California under non-cancelable operating leases that expire in 2025 , subject to an option by the Company to extend the lease term.

In June 2020, the Company entered into a lease amendment for 36,303 square feet of additional space in Hayward, California, that is expected to commence January 2021 for an eight-year term with minimum lease payments of $ 10.1 million.

The lease amendment provides for one eight-year extension period.

The Company also excluded the effect of Gilead’s right to purchase additional shares of the Company’s common stock from its calculation as these rights had no intrinsic value at March 31, 2021.

Standby Letters of Credit

The Company has standby letters of credit up to an aggregate of $ 2.0 million provided as collateral for its leases.

The letters of credit are secured by $ 2.0 million in deposits classified as restricted cash on the Company’s condensed consolidated balance sheets.

At March 31, 2021 the facilities were not drawn down.

Related parties

Relationship and transactions with Gilead Sciences, Inc.

As of September 30, 2020, Gilead held approximately 13 % of the Company’s outstanding common stock, and has the right, at its option, to purchase up to a maximum of 35 % of the Company’s then-outstanding voting common stock, from time to time over the next five years.

As of March 31, 2021, Gilead held approximately 19.5 % of the Company’s outstanding common stock.

These holdings resulted from Gilead’s participation in the May 2020 Public Offering as well as purchases of stock under the stock purchase agreements.

In the May 2020 public offering, Gilead purchased 2,200,000 shares of common stock for an amount of $ 56.7 million, net of offering costs.

Under the stock purchase agreements, Gilead purchased 5,963,029 and 5,650,000 shares in July 2020 and February 2021, respectively, for a total investment of $ 327.8 million, net of offering costs.

Gilead has the right, at its option, to purchase up to a maximum of 35 % of the Company’s then-outstanding voting common stock, from time to time over a five-year period from the closing of the initial transaction in July 2020.

Gilead also has the right under the Investor Rights Agreement to designate two individuals to be appointed to the Company’s board of directors.

In July 2020, in accordance with Gilead’s right, the Company appointed the first Gilead designee, Merdad Parsey, M.D., Ph.D., to its board of directors.

At September 30, 2020, the Company had a $ 2.5 million cost sharing receivable recorded on the condensed consolidated balance sheets under receivable from collaboration partners, to be invoiced the following quarter.

The Company also had $ 193.1 million in deferred revenue at September 30, 2020, of which $ 84.5 million represented the long-term portion of revenue allocated to Gilead’s access rights to the Company’s research and development pipeline and was recorded in deferred revenue, noncurrent on the condensed consolidated balance sheets.

The Company also recognized $ 9.2 million in contract liabilities for future development and promotion costs which Gilead prepaid , of which $ 1.9 million and $ 7.3 million represented the short and long-term portions of the liability, recorded in other current liabilities and other long-term liabilities on the condensed consolidated balance sheets, respectively.

For the three and nine months ended September 30, 2020, the Company recognized $ 62.8 million in revenue under the Gilead Collaboration Agreement.

The Company also recognized a $ 3.0 million reduction in research and development expense related to its cost-sharing provisions of the agreement, of which $ 2.5 million relates to the ongoing collaboration over zimberelimab and $ 0.5 million relates to the development and commercialization activities performance obligation.

Pursuant to the Investor Rights Agreement, the Company appointed the Gilead designees, Merdad Parsey, M.D., Ph.D.

and Michael Quigley, Ph.D., to its board of directors, in July 2020 and January 2021, respectively.

See Note 6 for further discussion of the agreements with Gilead.

At March 31, 2021, the Company had a $ 4.9 million cost sharing receivable recorded on the condensed consolidated balance sheets under receivable from collaboration partners, to be invoiced the following quarter.

The Company also had $ 177.7 million in deferred revenue at March 31, 2021, of which $ 110.1 million represented the long-term portion of revenue allocated to performance obligations not expected to be completed within one year of the balance sheet date, which was recorded in deferred revenue, noncurrent on the condensed consolidated balance sheets.

The Company also had $ 9.7 million in contract liabilities for future development and commercialization services which Gilead prepaid, all of which was recorded in other long-term liabilities on the consolidated balance sheets.

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

The Company also recognized a $ 4.9 million reduction in research and development expense, including $ 4.0 million of cost sharing reimbursement related to milestone expense, related to its cost-sharing provisions of the agreement.

The Company received a $ 175 million upfront payment from Gilead in connection with the Gilead Collaboration Agreement in July 2020 and identified $ 100 million in unconstrained consideration to be received in 2022.

In addition, in July 2020 the Company received $ 200 million from Gilead in connection with the Stock Purchase Agreement, of which approximately $ 109.4 million represented the fair value of stock purchased at the transaction closing date with the remaining premium of $ 90.6 million allocated to the transaction price.

In February 2021, the Company received $ 220.4 million from Gilead in connection with the purchase by Gilead of 5,650,000 shares of the Company’s common stock at a per share price of $ 39.00 pursuant to the amended and restated Stock Purchase Agreement.

Subsequent event

On October 29, 2020 the Company announced a collaboration with AstraZeneca to evaluate domvanalimab (AB154), 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).

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

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

Pursuant to the terms of the agreement, the parties will share costs for the trial.

Consistent with the terms of the recently completed Arcus-Gilead partnership, Gilead maintains an option to co-develop and co-commercialize domvanalimab.

In April 2021, the Company entered into a lease amendment that modifies rent schedules for its existing operating leases in Hayward, California, extends the terms of those leases, and adds 14,460 square feet of additional space in Hayward in a new operating lease expected to commence in 2022 .

Any extension periods defined under previous amendments are cancelled under the lease amendment and replaced by two options to extend the lease term for the entire Hayward premises for a period of eight years each.

The amended leases will end at the same time as the Company’s lease of its building in Brisbane, expected to be no earlier than December 2031 .

The lease amendment includes approximately $ 43 million in additional undiscounted future minimum lease payments throughout the expected term and provides additional tenant improvement allowances totaling $ 5.8 million with options to increase the allowance by $ 10.9 million.

The lease amendment requires an additional $ 1.0 million in collateral for the operating leases in Hayward.

In accordance with this requirement, the Company issued an additional $ 1.0 million letter of credit in April 2021.

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