What changed in this filing

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Item 1. Financial Statements

2021-08-05 compared with 2021-05-05 · 134 added, 90 removed, 404 unchanged (36% of the section changed)

28 unchanged sentences

Stockholders’ equity:

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

Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized as of June 30, 2021 and December 31, 2020;

no shares issued and outstanding as of June 30, 2021 and December 31, 2020

Common stock, $ 0.0001 par value, 400,000,000 shares authorized as of June 30, 2021 and December 31, 2020;

71,374,059 and 65,114,685 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively.

Shares outstanding includes 1,331,269 and 1,422,784 shares issued but subject to vesting as of June 30, 2021 and December 31, 2020, respectively

Additional paid-in capital

4 unchanged sentences

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

The Condensed Consolidated Balance Sheet as of December 31, 2020 has been derived from the audited financial statements as of that date.

ARCUS BIOSCIENCES, INC.

2 unchanged sentences

Three Months Ended

Six Months Ended

Collaboration revenue ($ 7,711 , $ 0 , $ 15,422 and $ 0 from a related party)

28 unchanged sentences

Balance at March 31, 2020

Issuance of common stock in public offering, net of $ 21,629 offering costs ( 2,200,000 shares and $ 56,738 , net of $ 3,762 offering costs, from a related party)

Issuance of common stock upon exercise of stock options

Vesting of early exercised stock options

Issuance of common stock under Employee Stock Purchase Plan

Stock-based compensation

Other comprehensive loss

Balance at June 30, 2020

Balance at December 31, 2020

6 unchanged sentences

Balance at March 31, 2021

Issuance of common stock upon exercise of stock options

and vesting of restricted stock

Vesting of early exercised stock options

Issuance of common stock under Employee Stock Purchase Plan

Stock-based compensation

Other comprehensive loss

Balance at June 30, 2021

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

The balances as of December 31, 2020 and 2019 have been derived from the audited financial statements as of that date.

ARCUS BIOSCIENCES, INC.

1 unchanged sentence

(In thousands)

Three Months Ended

Six Months Ended

Cash flow from operating activities

22 unchanged sentences

Cash flow from financing activities

Proceeds from issuance of common stock to related party

Proceeds from issuance of common stock ($ 220,235 and $ 56,738 from a related party)

Proceeds from issuance of common stock pursuant to equity award plans

7 unchanged sentences

Non-cash investing and financing activities:

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

Tenant improvement allowance receivable included in other current assets

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

Vesting of early exercised stock options

Unpaid portion of financing costs included in accounts payable

Unpaid portion of deferred financing costs included in accounts payable

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

7 unchanged sentences

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.

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

Liquidity and Capital Resources

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.

As of June 30, 2021, the Company had cash and investments of $ 805.1 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 date of filing of this report.

Significant Accounting Policies

6 unchanged sentences

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

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

Operating results for the six months ended June 30, 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.

20 unchanged sentences

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

Restricted cash at March 31, 2021 and 2020 represents cash balances held as security in connection with the Company’s facility lease agreements.

Restricted cash at June 30, 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):

9 unchanged sentences

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

14 unchanged sentences

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

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

There were no transfers within the hierarchy as of June 30, 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):

March 31, 2021

June 30, 2021

(Quoted Prices in

7 unchanged sentences

treasury securities

government agency securities

Corporate securities and commercial paper

14 unchanged sentences

Classified as (with contractual maturities):

March 31, 2021

June 30, 2021

December 31, 2020

1 unchanged sentence

Short-term investments (due within one year)

Long-term investments (due between one and two years)

Long-term investments (due between one and three years)

Total cash, cash equivalents and investments in marketable securities

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

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:

At June 30, 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 June 30, 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 June 30, 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 June 30, 2021 and December 31, 2020 are presented in the tables that follow (in thousands):

As of June 30, 2021:

Money market funds

treasury securities

government agency securities

Corporate securities and commercial paper

6 unchanged sentences

Accrued liabilities consisted of the following (in thousands):

As of March 31, 2021

As of June 30, 2021

As of December 31, 2020

5 unchanged sentences

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 loss.

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

The investment balance was zero at June 30, 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 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.

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 $ 0.2 million and $ 1.5 million during the three and six months ended June 30, 2020, respectively.

After applying $ 0.1 million and $ 0.9 million in losses accumulated in prior periods when the equity investment balance was zero , the Company recorded a gain of $ 0.1 million and $ 0.6 million for the three and six months ended June 30, 2020, respectively.

There was no similar gain on dilution in the three and six months ended June 30, 2021.

For the three and six months ended June 30, 2021, the Company accounted for its $ 0.8 million and $ 1.6 million share of PACT Pharma’s losses as unrecognized equity method losses, respectively.

The Company recorded $ 0.1 million and $ 0.6 million for its share of PACT Pharma’s operating losses for the three and six months ended June 30, 2020, respectively.

The unrecognized equity method losses in excess of the Company’s investment was $ 2.9 million as of June 30, 2021.

At June 30, 2021 and December 31, 2020, the Company determined the fair value of the warrants to be insignificant to the condensed consolidated financial statements.

In April 2021, the Company amended the non-cancelable operating lease for its corporate headquarters, which includes approximately 136,293 square feet of executive offices and research and development and business operations, in an office park in Hayward, California.

The amended lease added 14,460 square feet of additional space in a new lease expected to commence in 2022 , and extended the term of the existing leases through at least December 31, 2031 .

Once the lease of additional space commences, the Company’s leased space in Hayward will total 150,753 square feet.

Any extension periods defined under previous amendments were cancelled under the lease amendment and replaced by two options to extend the lease term for the entire 150,753 square feet then under lease in the Hayward premises for a period of eight years each.

The Company also leases space in Brisbane, California under a non-cancelable operating lease that is expected to commence in 2021 and extend through December 31, 2031 .

At June 30, 2021 the Company’s lease portfolio had a weighted average remaining term of 10.5 years.

The leases require monthly lease payments that are subject to annual increases throughout the lease term.

The optional period has not been considered in the determination of the right-of-use assets or lease liabilities associated with this lease as the Company did not consider it reasonably certain it would exercise the option.

The weighted average discount rate for the Company’s lease portfolio at June 30, 2021 was 5.2 %.

Lease expense is included in operating expenses in the condensed consolidated statements of operations and comprehensive loss.

For the three and six months ended June 30, 2021, the Company incurred lease expense of $ 1.5 million and $ 2.6 million, respectively, in relation to its operating leases.

For the same periods in the prior year, the Company incurred lease expense of $ 0.5 million and $ 1.1 million, respectively.

Lease costs include variable rent expense, which consists primarily of the Company’s proportionate share of operating expenses, property taxes, and insurance and is classified as lease expense due to the Company’s election to not separate lease and non-lease components.

Short-term lease costs were $ 0.1 million and $ 0.3 million for the three and six months ended June 30, 2021, respectively.

The Company incurred immaterial short-term lease costs for the same periods in the prior year.

At June 30, 2021, the Company’s operating lease right-of-use asset totaled $ 36.1 million, and the operating lease liability totaled $ 52.2 million.

The difference between the amount of the right-of-use asset and the lease liabilities relates to the incentives the Company received upon signing the original leases and its most recent amendment, of which approximately $ 11.6 million is expected to be received within one year of June 30, 2021 and is recorded in prepaid expenses and other current assets, net of the $ 2.5 million short-term portion of the operating lease liability.

The long term portion of the lease liability was $ 49.7 million at June 30, 2021 and is reported on the balance sheet as operating lease liability, noncurrent.

As of June 30, 2021, the Company’s future minimum lease payments were as follows (in thousands):

Year Ending December 31,

2021 (from July to December)

Total undiscounted future minimum lease payments

Imputed interest

Tenant improvement allowance receivable

Total operating lease liabilities

Tenant improvement allowance expected to be received in

less than one year, net of current portion of lease liability

(included in prepaid expenses and other current assets)

Operating lease liabilities, noncurrent

Total undiscounted future minimum lease payments do not include approximately $ 90.3 million and $ 5.3 million, respectively, related to the Company’s Brisbane lease and its additional space in Hayward, neither of which have yet commenced.

The Brisbane lease is expected to commence during 2021 and the additional Hayward lease is expected to commence in 2022 , both with terms through at least December 31, 2031 .

The Company has provided deposits for letters of credit totaling $ 3.0 million to secure its obligations under its lease s , which have been classified as restricted cash on the Company’s condensed consolidated balance sheet as of June 30 , 2021 .

License and Collaboration Agreements

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.

The following table summarizes the revenues for the three and six months ended June 30, 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Collaboration revenue

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,

The following table summarizes details of revenues for the three and six months ended June 30, 2021 and 2020 by collaboration and by category of revenue:

Three Months Ended June 30,

Six Months Ended June 30,

Revenues recognized:

Point in time

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

1 unchanged sentence

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Revenue recognized in the period from:

10 unchanged sentences

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.

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

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

18 unchanged sentences

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.

At June 30, 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.

4 unchanged sentences

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

At June 30, 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 .

8 unchanged sentences

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.

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.

At June 30, 2021, the Company had $ 106.3 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

5 unchanged sentences

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.

At June 30, 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.

As of June 30, 2021, no revenue had been recognized from this performance obligation.

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

5 unchanged sentences

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.

During the three and six months ended June 30, 2021, the Company recognized $ 0.1 million and $ 0.2 million, respectively, in expense from the amortization of these assets.

At June 30, 2021, the Company had $ 4.0 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 $ 3.0 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, 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 ending September 2022 (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.

An additional $ 5.0 million was received in 2018 and the remaining $ 5.0 million was received in 2019.

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, 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 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.

7 unchanged sentences

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

As of June 30, 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 March 31, 2021, no sales milestone or royalty revenue has been recognized.

As of June 30, 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 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.

From the inception of the WuXi PD-1 Agreement through June 30, 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.

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

From the inception of the WuXi CD-39 Agreement through June 30, 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 $ 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.

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

Under the Abmuno Agreement, the Company has made upfront and milestone payments totaling $ 14.6 million as of June 30, 2021.

The Abmuno Agreement also provides for additional clinical, regulatory and commercialization milestone remaining payments of up to $ 93.0 million as of June 30, 2021.

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

Genentech Collaboration Agreement

4 unchanged sentences

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.

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.

From the inception of the Agreement through June 30, 2021, the Company has incurred net expenses of $ 1.0 million.

For the three months and six months ended June 30, 2021, the Company incurred expenses pursuant to the Genentech Agreement of $ 0.3 million and $ 0.6 million, respectively.

No similar expenses were incurred for the same periods in the prior year.

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

5 unchanged sentences

net sales of zimberelimab in the biomarker-identified indication.

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.

From the inception of the Agreement through June 30, 2021, the Company has made a milestone payment of $ 2.5 million and has incurred expenses of $ 3.8 million, of which $ 0.8 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.

2 unchanged sentences

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

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.

As of June 30, 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 and six months ended June 30, 2021, the Company incurred expenses pursuant to the Strata Agreement of $ 0.5 million and $ 1.1 million, respectively.

Of these expenses, $ 0.1 million and $ 0.2 million, respectively, were reimbursed by Strata.

For the three and six months ended June 30, 2020, the Company incurred expenses pursuant to the Strata Agreement of $ 0.6 million and $ 1.0 million, respectively, of which $ 0.1 and $ 0.2 million, respectively, have been reimbursed by Strata.

AstraZeneca Agreement

5 unchanged sentences

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.

For each of the three and six months ended June 30, 2021, the Company incurred $ 0.3 million pursuant to the AstraZeneca Agreement.

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

Stockholders’ Equity

12 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Research and development

5 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Weighted-average common shares outstanding

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

Three Months Ended March 31,

As of June 30,

Common stock options issued and outstanding

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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 these rights had no intrinsic value at March 31, 2021.

The Company also excluded the effect of Gilead’s right to purchase additional shares of the Company’s common stock from its calculation as these rights had no intrinsic value at June 30, 2021.

Standby Letters of Credit

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

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

At June 30, 2021 the standby letters of credit were not drawn down.

Related parties

Relationship and transactions with Gilead Sciences, Inc.

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

As of June 30, 2021, Gilead held approximately 19.4 % 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.

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 and amounts allocated to the performance obligations created by the Gilead Collaboration Agreement.

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.

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See Note 7 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.

At June 30, 2021, the Company had a $ 1.3 million cost sharing receivable recorded on the condensed consolidated balance sheets under receivable from collaboration partners, to be invoiced the following quarter.

The Company also had $ 170.0 million in deferred revenue at June 30, 2021, of which $ 102.4 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.

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

For each of these periods, the Company also recognized reductions of $ 1.2 million and $ 6.1 million, respectively, in research and development expense, including $ 4.0 million of cost sharing reimbursement related to milestone expense, under the 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.

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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

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